US SEC charges 10 brokers with MBS fraud

WASHINGTON, May 28 (Reuters) - Ten brokers were charged with fraud for allegedly misleading investors that derivatives based on mortgage-backed securities were safe and conservative investments, the Securities and Exchange Commission said on Thursday.

The brokers, who worked for the now defunct Brookstreet Securities Corp, did not define the risks to customers before investing their money in risky collateralized mortgage obligations, the SEC alleged.

According to the SEC's complaint, the brokers portrayed collateralized mortgage obligations as secure investments to more than 750 customers, which ultimately cost those investors more than $36 million in losses. The SEC alleged that the brokers received $18 million in commission and salaries related to their customers' investments in the mortgage derivatives.

The SEC is seeking civil penalties as well as repayment of ill-gotten gains.

The Financial Industry Regulatory Authority, the broker-dealer watchdog, also brought its own complaint against six other former Brookstreet brokers, alleging fraud as well as making unsuitable recommendations to customers about the mortgage derivatives. (Reporting by Rachelle Younglai; Editing by Tim Dobbyn)